Youth Unemployment in Europe: Quo Vadis?

pissarides

DAVOS — Youth unemployment is at staggering levels in the European Union. Every fourth young person between the ages of 15 and 24 is unemployed, amounting to around 5.5 million young adults without a job. In Spain, recent employment data indicate that the number has risen to 60 percent, a new record.

 

The figures serve as a stark reminder of the fundamental problems within some of Europe’s southern economies.

 

“The real crisis we are going through is a labor crisis,” Patrick De Maeseneire, CEO of Adecco Group, a Zurich-based staffing company, said during a Credit Suisse panel discussion at the World Economic Forum in Davos. “We expect conditions in Europe to remain challenging at least in the first half of 2013. The first hope that we have for Europe is in 2014.”

 

Paying the Price for a Lost Generation

 

Youth unemployment is about twice as high as the average unemployment rate in many European countries. In Italy, youth unemployment rates are triple the average, and in Greece, they are 2.5 times as high.

 

“Countries like Germany, where youth unemployment is only about 1.4 times as high, are better off because of apprenticeship programs and other youth unemployment initiatives,” said Christopher Pissarides, a Nobel Prize-winning professor at the London School of Economics and Political Sciences.

 

The issue comes with a high price tag that Europe will likely be paying for many years to come.

 

“Working creates a social status, a future and an income for people. It’s a very sensitive issue for me because we are really losing a generation, and this will have an impact on future generations, too,” De Maeseneire said. “We need to bring these youngsters into the workforce at whatever price.”

 

The “Scar” of Youth Unemployment

 

The roots of youth unemployment are varied, and Europe struggled with the issue long before the onset of the sovereign debt crisis. Students who leave school early are at particular risk.

 

“Young workers have a handicap,” Professor Pissarides said, explaining that young people often lack job experience and have not yet identified their own strengths. “They first have to go job-shopping to find out what they are good at and what they enjoy.”

 

But the inflexibility of European labor markets makes test-driving jobs almost impossible for the masses of unemployed youngsters. The resulting long stretches of unemployment can impact a young person’s job-hunting prospects for years to come.

 

“When they don’t get a chance to experiment in jobs, they end up being unemployed for too long and losing the talents that they learned before,” Professor Pissarides warned. “They become disillusioned, feel as though they’re not wanted, perhaps decide to withdraw from the labor market completely or resort to violence – as we have seen in Athens and Madrid.”

 

In Europe, De Maeseneire believes there is a mismatch between the education paths young people choose and what the labor market requires. Europe has more than 3 million unfilled jobs, despite high unemployment.

 

“It takes at least 5 to 10 years to solve such mismatches,” De Maeseneire said.

 

As Europe Struggles On, the US Starts to Recover

 

The European Union has undertaken a set of initiatives aimed at reducing youth unemployment, but the situation continues to worsen. Increasing the flexibility of the labor market would help, Pissarides said, and governments could also help young people avoid long-term unemployment, particularly in times of recession.

 

“They should teach young people how to look for jobs, increase spending on education and subsidize self-employment: There’s a lot of entrepreneurial spirit in young people,” he said.

 

Europe could learn from the U.S. labor market, which has started making a slow recovery. The U.S. has gained 1 percentage point in productivity over Europe each year for the last 12 years.

 

“Europeans work 5.2 weeks per year less than their U.S. counterparts. Our retailers aren’t open on Sunday, we have many more holidays during the year, and workers in France are limited to 35-hour working weeks,” De Maeseneire explained. “We need to increase productivity tremendously, but somebody has to stand up and say, ‘Hey, we have to work a bit more.’”

 

Lowering corporate taxes could also attract industry and create more jobs. But in the end, young people may need to learn to choose between a low-paying job and no job, De Maeseneire said.

 

“I’m a big fan of the cheap jobs because they increase productivity, and once people get into the workforce they can then move up to a higher-paying job,” he said.

 

Skilled and Happy

 

De Maeseneire and Pissarides agreed that the models used to curb youth unemployment in Germany and Switzerland, such as apprenticeship programs, would support recovery in countries hurting most. Finland’s youth guarantee scheme ensures that young people will be offered a job, education or training, depending on their skills and suitability.

 

“Finland is preparing young people for what they are really good at,” De Maeseneire said. “We have to move away from the mentality that if our kids don’t go to university, they’re not good kids.”

 

What Does the Future Hold?

 

The aging populations of many developed countries, while causing a headache for governments due to pension payments, should also help reduce youth unemployment in coming years. As baby boomers retire, more people will be flowing out of the workforce than into it, reducing competition for jobs.

 

“Fewer babies have been born since 1991. The next generation should be better off in that respect,” De Maeseneire said.

 

Photo of London School of Economics Professor Christopher Pissarides courtesy of World Economic Forum via Compfight cc

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